ComputerLand Founder Finds Trouble in Paradise

The man is a millionaire several hundred times over and he lives on a beautiful Pacific island, but life’s no luau for William H. Millard. Everywhere he goes, someone wants his money.

First, there were the former business partners who persuaded a jury last year that Millard owed them 20% of his ComputerLand retail store empire. Then his dealers revolted because they wanted a bigger piece of his $1-billion-a-year sales pie.

It’s enough to make a fellow sell the store and leave town. So Millard left Oakland last March, settled in the U.S. tax haven of the Northern Mariana Islands near Guam and soon announced that he would sell his 96% interest in ComputerLand.

Next, the Marianas Legislature reached into Millard’s pockets.

Far from welcoming Millard with open arms, the elected leaders on the underdeveloped, investment-hungry Marianas have greeted him with an abrupt overhaul of their already peculiar tax laws--tailored to rake in some of the ComputerLand loot from Millard.

“Or any other millionaire who comes out here and plans to use the Commonwealth as a tax haven,” adds Joe Lifoifoi, speaker of the House of Representatives for the Commonwealth of the Northern Marianas.

Now, the U.S. Congress has jumped into the act. In an obscure provision apparently inserted by a Joint Taxation Committee staffer who was bothered by news of Millard’s move, the tax-reform bill now awaiting final approval in Washington contains tax “anti-abuse provisions” aimed at anyone who moved to the Northern Marianas, Guam or American Samoa, retroactive to Jan. 1, “without regard to motive.”

But the fight apparently has just begun. There are those who think the 53-year-old Millard could still pick his way through these mine fields.

When the Marianas Legislature took its swipe at Millard, he immediately canceled his plans for local investment and vows, through aides, that he will structure his pending ComputerLand stock sale to avoid the terms of the new local tax law.

To local Marianas business interests and others eager to develop the islands, the issue is bigger than Millard, for it’s an ill wind that blows no trade their way. Already, efforts are under way to repeal the onerous anti-Millard legislation and reassure other investors that they are welcome.

‘No Stability Here’

The whole episode “suggests there is no stability here,” says Abed Younis, publisher of Marianas Variety, the weekly newspaper on the principal Marianas island of Saipan. “There seems to be support for changing back, even among Legislature members.”

Replies the feisty Lifoifoi: “No way.”

As for Millard, he apparently intends to stay. However the tax brouhaha turns out, the Marianas still seem a nice answer to his highly unusual situation.

Driven by disgruntled ComputerLand dealers and courtroom adversaries out of the management of the company that he founded and built into the world’s biggest chain of computer stores, Millard finally agreed earlier this year to sell his virtually total ownership of the firm. Negotiations are under way this month with a number of would-be buyers, according to Millard’s Los Angeles attorney, Terry Giles.

The value of the 800-store franchise operation hasn’t been tested in the market until now, but it’s been estimated at more than $400 million. Giles says Millard hopes to use the proceeds to exploit a long fascination with the Far East and its expanding role in the world economy.

The Marianas, a U.S. trust territory, are “the farthest you can go and still be in the United States,” says Lynn Knight, an assistant who moved her family to Saipan to continue working for IMS Associates, Millard’s family holding company. It is a short airplane flight from Tokyo and other business centers in that part of the world.

Besides, it’s an island in the Pacific--a boffo place to live.

It was mostly a happy coincidence, Millard’s agents insist to this day, that the Marianas tax laws offered what a congressional staff member calls “the best deal under the American flag”--a promised 95% rebate of income or capital-gains taxes that would be owed under the federal tax code. The idea of the Marianas Legislature’s rebate plan, which took effect last year, is to encourage investment.

“Basically, if you’re in the 50% bracket, your effective tax rate is 2 1/2%,” the congressional staffer said.

For Millard, it was such an attractive package that he moved his family to Saipan, bought a house and started looking for ways to be a helpful local citizen. He wanted to upgrade the local power utility, for example. He also bought more than 100 acres overlooking lovely Laulau Bay and, according to Knight, planned to spend more than $50 million developing the site.

It might seem disingenuous for a Pacific isle offering that kind of tax climate to be offended by the arrival of someone like Millard. But Lifoifoi says that the low tax rate is appropriate for most people in the low-income Marianas, whose governmental operations will be subsidized by $228 million from U.S. taxpayers over the next six years.

“How would your readers feel if we’re begging Congress for $40 million and then they find out we’re rebating that $40 million to Millard?” Lifoifoi asked indignantly in a phone interview.

The change in the rebate system enacted last month still amounts to a bargain anywhere else: The size of the rebate drops to 50% if the normal tax liability exceeds $7.5 million and to 25% if the tax obligation is more than $20 million.

Still Attractive Enough

Lifoifoi figures that’s still attractive enough for serious, long-term investors while discouraging to anyone looking for a massive capital-gains windfall. Lifoifoi figures the $7.5-million threshold is so high that it would hardly penalize anybody on the island.

But there’s some disagreement on that point from within the Reagan Administration, where some view the tax change as an anti-investment measure that would affect a number of large business transactions.

“The (Marianas) are growing phenomenally,” says Gary Van Buskirk, special assistant for economic development in the Interior Department’s office of territorial and international affairs. “A $7.5-million tax bill isn’t a lot. This isn’t a sleepy little island any more.”

Of Millard, Van Buskirk says: “I don’t think he owes us an explanation of his motives.”

Others are less sanguine.

“It’s not in the interests of the Northern Marianas to be a spectacular tax haven,” says the congressional source. “Millard is the guy you’re going to write about, but now we’re seeing business people from Guam establishing residence in the Marianas, which are just half an hour away.”

Millard has canceled his local investment plans, Knight says--not because the new tax provisions are so bad but because they suggest a local proclivity to change policy at the drop of a hat. Millard will remain on Saipan and use it as a base from which to make investments elsewhere in the region, as he originally planned, according to attorney Giles.

But the tax outcome of his pending ComputerLand transaction remains a big question mark.

The tax-reform bill in Congress could defuse the whole dispute by subjecting Millard’s ComputerLand proceeds to full U.S. taxation if the Treasury Secretary determines that the source of the proceeds was the United States, where ComputerLand is headquartered. But Millard might be able to circumvent the new law if he sells his privately held stock to a foreign investor, some speculate.

Giles is negotiating with investors and said he hopes to have “found our buyer” by October at the latest.

He said the final resolution of the tax dispute doesn’t matter that much because Millard “is not living there for the tax benefits. Obviously, he’d prefer to pay as little tax as possible. But whatever the taxes are, that’s what the taxes are.”

However, Knight said Millard has already figured out several ways to legally dodge the Marianas’ new tax provisions when he sells his ComputerLand stock. For instance, he could stretch out the payments so the capital-gains tax bill each year falls below $7.5 million, assuring that he would get the maximum 95% rebate.

“Mr. Millard plans to structure (the ComputerLand sale) so he does not pay the additional tax here,” Knight said. “He will not be paying what they thought he would be paying.”

Speaker Lifoifoi says philosophically that if Millard takes the ComputerLand money in installments of less than $7.5 million, “we’ll just take 5% each time.” But he adds: “I don’t know what he’s up to now. He’s been very quiet.”